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Kerr-McGee Corp.'s stock price soared more than $3.76/share Thursday to a record high of $100.51/share and then jumped to $104.45 in early trading on Friday after the company announced that it previously underestimated its potential natural gas reserves in the Rocky Mountain region by 3.7 Tcfe and underestimated its resources offshore Brazil by 200 MMboe.

Kerr McGee said it now has identified more than 6 Tcf of potential gas resources in the Greater Natural Buttes area of eastern Utah's Uinta Basin and in the Wattenberg Field in the Denver-Julesburg basin of northeastern Colorado.

The company also raised its resource estimate for its Chinook discovery offshore Brazil by 200 MMboe to 450 MMboe and increased projections on "organic" production growth through 2008 to a compound average growth rate of 5-9%. In addition, the company announced that it replaced 150% of its production from continuing operations in 2005 at a finding, development and acquisitions cost of less than $11.85/boe.

"These accomplishments demonstrate that we are effectively executing our strategy as a pure-play exploration and production company, and every program in our company is focused on improving returns," said CEO Luke R. Corbett. "We believe that we have the right assets, opportunities, people and strategy to deliver increasing value to our shareholders."

In 2005, the company was pressured by a group led by financier Carl Icahn, who acquired 7.7% of Kerr-McGee's shares, into becoming a pure-play E&P operation. Icahn's pressure led the Oklahoma City-based company to buy back stock and to hold an initial public offering for shares in its chemicals unit, Tronox. The company also announced plans to focus on the Rockies and the deepwater Gulf of Mexico. It sold its North Sea assets for $3.5 billion and unloaded multiple non-core assets in various onshore areas in the U.S.

It has zeroed in on several resource plays in the Rockies that hold great potential, including the Greater Natural Buttes, where it has identified a net unbooked resource potential of 4.7 Tcfe compared to the previous estimate of 1.8 Tcfe. Kerr-McGee currently has more than 1,200 wells in the area and owns and operates a 700-mile gathering system there.

"Since acquiring this field in 2004, we have worked to define the field's identified resource potential," said COO Dave Hager. "Kerr-McGee has booked less than 1 Tcfe as proven, which means we have the potential for a five-fold increase to existing proved reserves in this field alone. We are accelerating activity to achieve that increase and to capitalize on the vast opportunities in the Wasatch and Mesa Verde formations, which are present throughout our acreage position."

In the Wattenberg field in northeastern Colorado, Kerr-McGee has tripled its unbooked net resource potential. The increase from 0.5 Tcfe to 1.5 Tcfe is primarily due to a successful pilot program for downspacing, which contributed to the Colorado Oil and Gas Conservation Commission's approval of about 2,500 additional wells throughout 27 townships in the heart of Kerr-McGee's acreage within the Wattenberg field. The increased resources also reflect identified tri-frac opportunities throughout the field.

Wattenberg is a tight gas sand field where Kerr-McGee operates most of the wells in which it owns an interest. It also owns and operates the largest gathering system in the field, with more than 1,700 miles of pipeline and the capacity to move 300 MMcf/d.

The company is planning to drill about 680 development wells in 2006, including 560 in the Greater Natural Buttes, Wattenberg and northern Rockies areas.

Kerr-McGee also on Thursday extended its estimated organic production growth through 2008 at a compounded annual growth rate of 5-9% due to the acceleration of exploitation projects in the Rockies and deepwater development projects at Constitution and Ticonderoga, Independence Hub and Blind Faith. The volumes do not include any potential production from existing discoveries in Brazil and Alaska.

Kerr-McGee also announced it expects to submit a plan to its board to distribute the remaining shares of Tronox Class B common stock to existing shareholders before the end of the first quarter. Through the Tronox IPO last November, Kerr-McGee received $800 million on a tax-free basis for 45% of the stock. It has retained 22.5 million shares that have a 120-day lockup, which expires on March 22, 2006.

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